The Loonie’s Flirtation with Parity: Prospects and Policy Implications
With the Canadian dollar near parity with its US counterpart, monetary policymakers may come under pressure to curb future interest rate increases to limit the loonie’s appreciation. When the value of the loonie is in line with economic fundamentals, such actions would necessarily compromise the domestic inflation target. By examining the factors underpinning the Canada/US exchange rate, we conclude that the present trading range for the loonie is supported by fundamentals. The Bank of Canada should therefore continue its policy of benign neglect with regard to the exchange rate.
|Date of creation:||Jun 2010|
|Publication status:||Published on the C.D. Howe Institute website, June 2010|
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